The Hindu Business Line : Caution on Asean FTA

Should India go out of the way to accommodate, nay please, its Asian neighbours some of whom make fanciful demands without a commensurate quid pro quo? Opinions may differ, but it is clear that at the recent India-Asean economic ministers' consultations, pressure was brought on New Delhi to not only prune the negative list further but also effect deeper cuts in import tariffs. Before the meeting, India had offered to reduce tariffs on sensitive goods such as palm oil, tea and pepper; but this fell short of the Association of South-East Asian Nations' expectations.

On the other hand, India's position on opening up of services and investments received scant attention. The proposal may not have been brushed aside, but the message was clear: India must first open its market wide for the Asean. In particular, Malaysia seemed to have made palm oil tariff reduction a one-point agenda. There is growing suspicion that India is rushing into a series of relationships without adequate homework and stakeholder consultation. India's recent high growth performance and its widely recognised prospects for next several years automatically create opportunities not only for import and export of goods, but also for services and investment.

A calibrated approach to opening up the market is necessary. It would be dangerous to sacrifice the domestic producers' interests at the altar of free trade negotiations. Sensitive agricultural goods are a case in point. There is nothing to warrant grant of major tariff concessions, for instance to palm oil, merely to please some country. Indeed, deep tariff cuts made in a hurry without first addressing domestic issues of production, quality, markets and prices could be suicidal. The the international policy environment is becoming increasingly complex. Every country faces in some degree a dilemma — how to reconcile the conflict arising out of the need to at once meet domestic compulsions and international obligations. Unlike several small countries in Asia, India is a large market for goods and also a growing supplier of services and investment. Negotiators have to drive talks in a manner that does not compromise domestic interests. This calls for regular stakeholder consultation.

With WTO talks floundering and little prospect of a meaningful revival anytime soon, most countries seem to bet on trade agreements of various hues — free, preferential, bilateral, regional and so on. Countries in the Asia-Pacific region have entered into a web of overlapping trade agreements in recent years. Admittedly, preferential trade agreements in the Asia-Pacific region offer gains, but their realisation would depend on the commitment to liberalise sensitive sectors, to maintain consistent provisions and to enforce agreements. Welfare gains are likely to come from the inclusion of agriculture, services, trade facilitation and other behind-border measures in the agreements. Design of agreement and quality of implementation are important too. New Delhi needs to apply itself more rigorously to these issues.

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